Business Incentives Co., Inc. v. Sony Corp. of Amer., 75 Civ. 214.

• Decision Date: 04 June 1975
• Docket Number: No. 75 Civ. 214.,75 Civ. 214.
• Citation: 397 F. Supp. 63
• Parties: BUSINESS INCENTIVES CO., INC., Plaintiff, v. SONY CORPORATION OF AMERICA, Defendant.
• Court: U.S. District Court — Southern District of New York

397 F. Supp. 63

BUSINESS INCENTIVES CO., INC., Plaintiff, v. SONY CORPORATION OF AMERICA, Defendant.

No. 75 Civ. 214.

United States District Court, S. D. New York.

June 4, 1975.

Nierenberg, Zeif & Weinstein, New York City, for plaintiff; by Saul I. Weinstein, New York City, of counsel.

Rosenman, Colin, Kaye, Petschek, Freund & Emil, New York City, for defendant; by Leonard H. Rubin, Charles A. Soberman, New York City, of counsel.

MEMORANDUM AND ORDER

WHITMAN KNAPP, District Judge.

Defendant in this diversity breach of contract action has moved for a Rule 12(b)(6) order dismissing seven counts of the nine count complaint — or in the alternative for summary judgment on such counts—on the ground that they fail to state claims upon which relief may be granted. Plaintiff cross moves for partial summary judgment on the remaining two counts, on the ground that defendant's failure to move or answer as to these counts entitles it to judgment thereon. Defendant's motion is granted, except as to Count VII, and Counts I-IV and VIII-IX are dismissed. Plaintiff's motion is denied, defendant's time to answer having automatically been extended by its Rule 12(b)(6) motion.

On July 12, 1965, plaintiff—a small family owned New Jersey corporation — entered into a contract with defendant Sony — a large publicly held New York corporation — whereby it agreed to interest industrial concerns located in the New York metropolitan area in the purchase, direct from Sony, of Sony electronic products for use as prizes and awards in their employee incentive and customer premium programs. Serving as an intermediary between Sony and such industrial concerns, plaintiff was, in effect, an independent salesman for SONY goods. It had been performing similar services for many other manufacturers — including several of Sony's major competitors.¹ However, plaintiff claims that by the time this lawsuit was commenced it had developed its Sony business to such an extent that 75% of its income was derived from commissions earned on the sale of SONY products alone. Under the terms of its initial agreement with Sony, plaintiff's rate of commission was set at 5% of all sales effected by it between Sony and third parties. Sony reserved the right to accept or decline orders by customers procured by plaintiff and to determine the price, terms and conditions of such sales. Their contract also had a provision entitling plaintiff to buy representative samples of Sony's products at a 15% discount, for use in soliciting customers for Sony. Finally, the contract had a termination clause, empowering either party to terminate the Agreement, on 15 days notice. That clause had no provision requiring either party to justify such termination.

Although plaintiff was in the business of soliciting orders for the products of its clients, such as Sony, there is no indication in the papers before us that its contracts with clients other than Sony were in any way similar to its arrangement with Sony. Nor is it suggested that Sony itself had entered into similar contracts with salesmen other than plaintiff.

Two years later, having successfully built up the "territory" of New York, plaintiff was told by Sony to restrict its operations to the less lucrative "territory" of New Jersey. Plaintiff was advised that unless it agreed to this change, Sony would exercise its rights under the termination clause. Accordingly, on September 1, 1967, the parties entered into an Agreement which modified and superceded the 1965 contract, by limiting plaintiff's "territory" to New Jersey. This Agreement also eliminated the 15% product discount, but left unchanged both the rate of commission and the termination clause. The complaint does not specify what percentage of plaintiff's business was devoted to Sony at this juncture. On March 22, 1972, this second Agreement was modified, again at Sony's insistence, by a downward revision of the commission rate schedule. Subsequently, by letter dated November 2, 1973, Sony elected, in accordance with the termination clause, to terminate the Agreement, effective December 31, 1973.

On January 17, 1975, plaintiff commenced the instant action for damages arising out of what it claims to have been the unlawful termination of its contract, and for recovery of allegedly earned but unpaid commissions. Plaintiff's contention is that by virtue of Sony's disproportionately superior bargaining position, it was able to and did dictate to plaintiff grossly unfair conditions. But for this allegedly coercive situation, plaintiff contends, it would have never agreed to a contractual clause providing for termination regardless of cause. Nor would it have agreed to any downward revision of its commission rate. Sony's response to this contention is that plaintiff voluntarily entered into the Agreement with it, knowing full well that either party could terminate the relationship without cause; that plaintiff was not then at its mercy, as it already had many other product lines which it sold and could develop; and that, despite the existence of these other income producing opportunities, plaintiff chose to concentrate its efforts on the build-up of its business with Sony — because that seemed (and proved) to be the most economically advantageous to plaintiff.

Since Sony's motion to dismiss addresses itself to the complaint on a count by count basis, we shall briefly summarize the several counts. Plaintiff requests the following relief:

Count I. Damages for Sony's unilateral act of reducing plaintiff's commission by alleged threats of "economic duress". (Adopting principles of notice pleading, this count will be interpreted to claim any relief obtainable at common law).

Count II. Damages for Sony's unilateral reduction of commissions, on the ground that under the New Jersey Franchise Practices Act (N.J.S.A. 56:10-1 et seq.), the 1967 Agreement between the parties constitutes a "franchise" within the meaning of the Act and plaintiff is therefore entitled to the protection afforded by the Act.

Count III. Damages for Sony's unilateral act of cancelling the Agreement without cause, allegedly due to the "economic duress" referred to in the first Count.

Count IV: Damages for Sony's unilateral act of cancelling the Agreement without cause in violation of the N.J. Franchise Practices Act.

Count V: Not subject of this motion Damages for commissions earned on orders placed by customers procured by plaintiff prior to December 31, 1973 but shipped after that date.

Count VI: Not subject of this motion Damages for failure to ship orders promptly during the term of the Agreement.

Count VII: Damages for failure to make available to plaintiff's president a trip on an African safari allegedly earned by plaintiff as a bonus.

Count VIII: Commissions on orders placed after December 31, 1973 by customers procured by plaintiff who had set up programs utilizing Sony's products prior to the termination of the Agreement on December 31, 1973.

Count IX: Commissions for sales subsequent to December 31, 1973 to customers procured by plaintiff who had previously purchased Sony products prior to that date.

As can be seen, plaintiff's claims fall into three general categories. The first, set forth in Counts I and III, rests on a theory of "economic duress". The second (Counts II and IV) seeks the same relief as the first, but under the New Jersey Franchise Practices Act. The final category (Counts V-IX) seeks varied relief on straight breach of contract theories.

Preliminarily, we must decide which law applies — that of New York or that of New Jersey. The problem arises because although the Tenth Paragraph of the parties' Agreement specifically provides that the Agreement "shall be governed by the laws of the State of New York", plaintiff's second category of Counts (II and IV) seeks relief under a New Jersey statute. And the first category of Counts (I and III) can be construed as claiming relief in a common law area where New Jersey has expressed a strong public policy. With respect to the statutory claim, if we should determine that the Act in question does indeed govern the parties' relationship, there is no doubt that plaintiff would have a claim for damages for Sony's reduction of the commission rate² and its termination of the Agreement without just cause.³

In general, courts will ordinarily honor contractual choice of law provisions, as long as the state selected has sufficient contacts with the transaction in question and the application of that state's law would not be contrary to any fundamental policy of a state which has a materially greater interest than the chosen state in the determination of the particular issue at bar, and which would be the state of the applicable law in the absence of an effective choice of law by the parties. Restatement 2d, Conflict of Laws, § 187. Despite the provision in the parties' Agreement that New York law would apply, it appears that, under the above test, New Jersey law should govern instead. The only contacts with New York are that defendant is a New York corporation and the original 1965 contract provided for performance in the New York metropolitan area. New Jersey, on the other hand, would seem to have a materially greater interest in the application of its law by virtue of the fact that plaintiff is a New Jersey corporation, that the performance of the contract now in issue (executed in 1967 and modified in 1972) contemplated performance exclusively in New Jersey, and, most importantly, that New Jersey has a strong public policy — enunciated both by its courts and its legislature — in favor of protecting the relatively powerless consumer or small businessman from more powerful commercial giants, such as automobile manufacturers, oil companies, and, presumably, electronics manufacturers. See Henningsen v. Bloomfield Motors, Inc. (1960) 32 N.J. 358, 161 A.2d 69, Shell Oil Company v. Marinello (1973) 63 N.J. 402, 307 A.2d 598. In light of the...